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Auctions With Endogenous Bidder Participation


Author Info

  • Harstad, Ronald M.


Milgrom and Weber's General Symmetric Model of auctions is adapted to an extensive form in which seller first announces rules for an auction, then each of a pool of potential bidders makes a rational choice whether to participate, i.e., to acquire some initial information at an opportunity cost. This fundamentally changes the way choices among auction rules are analyzed; some previously central questions lose much of their relevance. If an otherwise revenue-enhancing mechanism discourages entry, then its net impact may be to reduce revenue. In this model, on average, revenue equals asset value to the winner less aggregate participation costs, for any standard auction mechanism. Seller chooses an allocatively efficient auction mechanism. A nontrival reserve price is a revenue-inferior policy; other surplus-extracting devices have switched from complements to substitutes. Underlying parameters divide into two regions: one "overattractive", the other "underattractive". All expected revenue comparisons for a fixed number of bidders carry over to the overattractive region, and all are reversed for the underattractive region. Overattractiveness characterizes any auction with sufficiently low participation costs, or sufficiently imprecise information. The paper considers extensions to multiple levels of participation costs, and to risk aversion.

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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 251.

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Length: pages
Date of creation: Jul 1993
Date of revision:
Handle: RePEc:bon:bonsfb:251

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Cited by:
  1. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
  2. Ausubel, Lawerence M. & Cramton, Peter, 1998. "The optimality of being efficient : designing auctions," Policy Research Working Paper Series 1985, The World Bank.
  3. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999.


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